GST rollout a key focus area for government
Since it formed the government in 2014, the Modi administration has undertaken several reform measures which should be highly beneficial for India’s economy in the longer term. These include reforms in power transmission, bank’s NPL recognition, bankruptcy bill, constituting monetary policy committee, inflation targeting, foodgrain management, direct benefit transfers, deregulating oil prices, some labour reforms in the textile sector, progress on improving ease of doing business and ramping up public investments.
It now appears that multiple reforms measures are at different stages of progress and the government seems to have largely addressed most of the critical policy decisions practically possible in a short time period of three years.
Among the unfinished agenda, the fruition of the goods and services tax (GST) now remains the single biggest focus area for the government. It is expected that the government will endeavour to roll out GST in FY18 itself, despite the pressure to delay it as the economy – particularly the SME segment which constitutes 40 per cent of the GDP – may not be able to cope with multiple transformational changes (the earlier being the demonetisation drive) in the same year.
However, given the recent commentary by finance minister Arun jaitley and regular deliberations of the central and state ministers in the GST council, the government seems intent on rolling out GST at the earliest possible, even though some segments of business community may not be prepared for the new indirect tax regime.
The committee appears to have made significant headway in terms of identifying the different slabs and assigning most of the goods and services under a particular slab, the key unsolved vexatious issue remains that of duality of control over inter-state transactions. Once this is resolved and a solution is arrived at for other issues such as territory definition, sharing of revenue loss for few states, the tax regime appears to be in a reasonable stage of readiness.
While the initial deadline of April 1, 2017 seems difficult to attain, it will be no surprise if GST is initiated by 2HFY18. While the long-term benefit of a uniform income tax regime is incontrovertible and well appreciated, several businesses will take time to adjust to the new tax dispensation which may be disruptive for operations. Hence, it is anticipated that some earnings impact will take place once GST is rolled out and expect consensus earnings to be adjusted accordingly.